SOURCE: Esterline Technologies

Esterline Technologies

August 30, 2012 16:00 ET

Esterline Announces Fiscal 2012 Third Quarter Results

Year-Over-Year Revenue Growth Nearly 19%; Strong Fourth Quarter Expected

BELLEVUE, WA--(Marketwire - Aug 30, 2012) -  Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving the global aerospace/defense markets, today reported third quarter 2012 (ended July 27) earnings from continuing operations of $35.1 million, or $1.12 per diluted share (EPS), on sales of $485.9 million, prior to a previously announced $52.2 million, or $1.69 per diluted share, non-cash charge against goodwill for its U.K.-based Racal Acoustics defense business. This compared with year-ago income from continuing operations of $37.7 million, or $1.21 per diluted share, on sales of $409.5 million. Including the goodwill charge, third quarter net loss from continuing operations was $17.1 million, or $0.55 per diluted share. 

Brad Lawrence, Esterline's Chief Executive Officer, said, "...we expect a rebound to finish the year as discrete events that impacted the third quarter are abating and improvements at our Avionics Systems, Control Systems, and Engineered Materials operations will contribute to a strong fourth quarter performance." Lawrence added that "...our solid backlog positions the company to drive growth and capture additional profitability in fiscal 2013."

As stated in the company's preliminary third quarter announcement, full-year revenue is anticipated to range between $1.95 billion and $2.00 billion, representing growth of approximately 15% over fiscal 2011. Including anticipated fourth quarter diluted EPS of $1.60 to $1.70, the company expects full-year EPS (excluding the goodwill charge) to be in the range of $4.90 to $5.00 per diluted share, compared with $4.27 a year ago.

Lawrence commented that, with respect to the company's broader business, "...we're well positioned to benefit from further strengthening in the commercial aerospace cycle and continue to increase our content on a number of key aircraft programs." He added that stronger customer relationships and revenue synergies are continuing to develop following the integration of the Souriau acquisition into the company's Sensors & Systems segment, saying "...increasingly, we are able to find ways to develop valuable, multi-pronged solutions for our customers using our complementary range of products."

Lawrence reiterated his remarks from early August regarding the discrete issues currently affecting the company -- including Lockheed's F-35 Joint Strike Fighter inventory rebalancing initiative, and a slowdown in both Airbus A380 and T-6B production. He emphasized that all of these programs are expected to be back on track in the first part of the coming year. 

With regard to Esterline's overall defense business, Lawrence noted, "...our mix of new and retrofit programs with significant Esterline content, especially in international markets, should minimize the impact of the defense budget environment in the next fiscal year and beyond." He added, "...just in the last few weeks we have received instructions to begin shipping product in early fiscal 2013 for two large and long-delayed international countermeasure orders." 

Gross margin as a percentage of sales was 35.4% in the third quarter compared with 35.1% in the prior-year period. Selling, general and administrative expenses were 18.9% of sales in the quarter compared with 18.7% last year. Lawrence said that the company's focus on operational excellence and determination to be its customers' best supplier, combined with the resumption of cockpit retrofit sales, will enable Esterline to continue to improve "...our operating margins and reach our goal of 15%."

Research, development and engineering expense in the quarter was $27.2 million, or 5.6% of sales, compared with $23.1 million, or 5.6% of sales, a year ago. The company is continuing to hold R&D spending at a level that will support new programs as previously expensed programs begin to ramp into production.

The company's quarterly income tax rate before the goodwill charge was 16.5% compared with 6.9% for the third fiscal quarter of 2011, including a four percentage point tax benefit in the third quarter mainly due to a reduction in the U.K. corporate tax rates.

For the first nine months of fiscal 2012, excluding the goodwill charge, net income was $103.0 million, or $3.30 per diluted share, compared with $113.6 million, or $3.65 per diluted share last year. Including the charge, net income for the first nine months of fiscal 2012 was $50.9 million, or $1.63 per diluted share. Sales for the first nine months of fiscal 2012 were $1.46 billion, compared with $1.22 billion in the same period a year ago.

New orders for the first nine months of fiscal 2012 were $1.45 billion compared with $1.38 billion for the same period in 2011, a 5% year-over-year increase. Backlog was $1.24 billion at July 27, 2012, compared with $1.26 billion at the end of the prior-year period.

Conference Call Information
The company will hold a conference call to discuss this announcement today, August 30, at 5:00 pm EDT. The call can be accessed by dialing 800-901-5247 from within the United States or 617-786-4501 outside of the U.S. and using this participant passcode: 55640693. A replay of the call will be available for one week by dialing 888-286-8010 or 617-801-6888 and using this passcode: 38299814.

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "should" or "will," or the negative of such terms, or other comparable terminology. These forward-looking statements are only predictions based on the current intent and expectations of the management of Esterline, are not guarantees of future performance or actions, and involve risks and uncertainties that are difficult to predict and may cause Esterline's or its industry's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Esterline's actual results and the timing and outcome of events may differ materially from those expressed in or implied by the forward-looking statements due to risks detailed in Esterline's public filings with the Securities and Exchange Commission including its most recent Annual Report on Form 10-K.

                         
                         
ESTERLINE TECHNOLOGIES CORPORATION  
Consolidated Statement of Operations (unaudited)  
In thousands, except per share amounts  
                         
    Three Months Ended     Nine Months Ended  
    Jul 27,     Jul 29,     Jul 27,     Jul 29,  
    2012     2011     2012     2011  
Segment Sales                                
  Avionics & Controls   $ 195,059     $ 208,021     $ 569,656     $ 632,020  
  Sensors & Systems     171,603       88,605       527,958       250,841  
  Advanced Materials     119,287       112,886       364,048       332,727  
                                 
Net Sales     485,949       409,512       1,461,662       1,215,588  
                                 
Cost of Sales     313,853       265,973       946,962       778,980  
      172,096       143,539       514,700       436,608  
Expenses                                
  Selling, general and administrative     91,869       76,418       285,516       214,919  
  Research, development and engineering     27,198       23,075       83,138       63,945  
  Gain on settlement of contingency     --       --       (11,891 )     --  
  Goodwill impairment     52,169       --       52,169       --  
  Other income     (1,263 )     (6,366 )     (1,263 )     (6,366 )
    Total Expenses     169,973       93,127       407,669       272,498  
                                 
Operating Earnings From Continuing Operations     2,123       50,412       107,031       164,110  
                                   
  Interest income     (109 )     (658 )     (320 )     (1,428 )
  Interest expense     12,159       10,286       35,171       28,381  
  Loss on extinguishment of debt     --       --       --       831  
                                 
Income (Loss) From Continuing Operations Before Income Taxes     (9,927 )     40,784       72,180       136,326  
Income Tax Expense     6,963       2,821       20,677       22,323  
                                 
Income (Loss) From Continuing Operations Including Noncontrolling Interests     (16,890 )     37,963       51,503       114,003  
Income Attributable to Noncontrolling Interests     (214 )     (222 )     (628 )     (328 )
                                 
Income (Loss) From Continuing Operations     (17,104 )     37,741       50,875       113,675  
                                 
Loss From Discontinued Operations, Net of Tax     --       (46 )     --       (75 )
                                 
Net Earnings (Loss)   $ (17,104 )   $ 37,695     $ 50,875     $ 113,600  
                                 
Earnings (Loss) Per Share - Basic:                                
  Continuing Operations   $ (.55 )   $ 1.23     $ 1.66     $ 3.73  
  Discontinued Operations     .00       .00       .00       .00  
                                 
Earnings (Loss) Per Share - Basic   $ (.55 )   $ 1.23     $ 1.66     $ 3.73  
                                 
Earnings (Loss) Per Share - Diluted:                                
  Continuing Operations   $ (.55 )   $ 1.21     $ 1.63     $ 3.65  
  Discontinued Operations     .00       .00       .00       .00  
                                 
Earnings (Loss) Per Share - Diluted   $ (.55 )   $ 1.21     $ 1.63     $ 3.65  
                                 
Weighted Average Number of Shares Outstanding - Basic     30,835       30,579       30,712       30,475  
                                 
Weighted Average Number of Shares Outstanding - Diluted     30,835       31,260       31,266       31,144  
                                 
                                 
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Sales and Income (Loss) from Continuing Operations by Segment (unaudited)
In thousands
    Three Months Ended     Nine Months Ended  
    Jul 27,     Jul 29,     Jul 27,     Jul 29,  
    2012     2011     2012     2011  
                                 
Segment Sales                                
  Avionics & Controls   $ 195,059     $ 208,021     $ 569,656     $ 632,020  
  Sensors & Systems     171,603       88,605       527,958       250,841  
  Advanced Materials     119,287       112,886       364,048       332,727  
                                 
Net Sales   $ 485,949     $ 409,512     $ 1,461,662     $ 1,215,588  
                                 
Income (Loss) From Continuing Operations                                
  Avionics & Controls   $ (25,611)1     $ 28,604     $ 12,7031     $ 104,523  
  Sensors & Systems     18,305       10,764       49,830       33,403  
  Advanced Materials     17,293       18,797       66,526       57,044  
      9,987       58,165       129,059       194,970  
                                 
  Corporate expense     (9,127 )     (14,119 )     (35,182 )     (37,226 )
  Other income     1,263       6,366       1,263       6,366  
  Gain on settlement of contingency     --       --       11,891       --  
  Interest income     109       658       320       1,428  
  Interest expense     (12,159 )     (10,286 )     (35,171 )     (28,381 )
  Loss on extinguishment of debt     --       --       --       (831 )
                                 
Income (Loss) From Continuing Operations                                
  Before Income Taxes   $ (9,927 )   $ 40,784     $ 72,180     $ 136,326  
                                 
1 Includes a $52.2 million charge against goodwill of Racal Acoustics.                 
 
 
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Balance Sheet (unaudited)
In thousands
         
    Jul 27,   Jul 29,
    2012   2011
Assets            
Current Assets            
  Cash and cash equivalents   $ 213,073   $ 207,838
  Cash in escrow     5,014     5,000
  Accounts receivable, net     333,815     364,303
  Inventories     410,515     444,771
  Income tax refundable     10,409     7,086
  Deferred income tax benefits     46,078     49,342
  Prepaid expenses     23,872     21,752
  Other current assets     2,651     13,924
    Total Current Assets     1,045,427     1,114,016
             
Property, Plant and Equipment, Net     355,051     340,453
             
Other Non-Current Assets            
  Goodwill     1,076,874     1,190,506
  Intangibles, net     608,416     728,642
  Debt issuance costs, net     9,294     11,177
  Deferred income tax benefits     88,208     93,276
  Other assets     18,756     21,200
    $ 3,202,026   $ 3,499,270
             
Liabilities and Shareholders' Equity            
Current Liabilities            
  Accounts payable   $ 109,936   $ 125,079
  Accrued liabilities     268,889     289,630
  Credit facilities     127     --
  Current maturities of long-term debt     12,521     13,174
  Deferred income tax liabilities     3,503     22,335
  Federal and foreign income taxes     13,713     11,415
    Total Current Liabilities     408,689     461,633
             
Long-Term Liabilities            
  Credit facilities     300,000     395,000
  Long-term debt, net of current maturities     619,753     675,290
  Deferred income tax liabilities     208,702     255,534
  Pension and post-retirement obligations     89,770     91,072
  Other liabilities     34,180     20,161
             
Total Shareholders' Equity     1,540,932     1,600,580
    $ 3,202,026   $ 3,499,270